FHA (Federal Housing Administration)
PFS (Pre Foreclosure Sale)
The Pre Foreclosure Sale (PFS) option allows mortgagors/homeowners in default (resulting from an adverse and unavoidable financial situation) to sell their home at fair market value and use the sale proceeds to satisfy the mortgage debt even if the proceeds are less than the amount owed.
This option is appropriate for mortgagors whose financial situation requires that they sell their home, but they are unable to do so without FHA relief because the gross recovery on the sale of their property (i.e., sales price minus sales expenses) is less than the amount owed on the mortgage.
HUD’s home retention alternatives such as Special Forbearance, Mortgage Modification, or Partial Claim must first be considered and determined unlikely to succeed due to the mortgagor’s financial situation. Homeowners must provide supporting documentation to demonstrate that a comprehensive review of the homeowners financial records are completed, and that the homeowner does not have sufficient income to sustain the mortgage.
To participate in the program, homeowners must be willing to make a commitment to actively market their property for a period of 3 months, during which time the mortgagee delays foreclosure action. Homeowners who successfully sell to a third party within the required time may receive a cash consideration of up to $1,000.
Homeowner Qualifications:
1) Are in default as a result of an adverse and unavoidable financial situation. Adverse and unavoidable financial situations may include but are not limited to loss of job or verifiable income reduction and extensive medical expenses.
2) Have negative equity as determined by an "as-is" FHA appraisal that indicates a property value less than 100% of the outstanding mortgage balance (including unpaid principal and accrued note rate interest) and any outstanding Partial Claim amounts, which are secured by a subordinate lien and/or a note. A PFS may be considered if the property’s "as-is" appraised FMV (fair market value) slightly exceeds the mortgage payoff figure, but gross sales proceeds fall short of the amount needed to discharge the mortgage by more than $1,000.
3) Are owner-occupants of a one-to-four unit single-family dwelling with a FHA-insured mortgage under Title II of the National Housing Act. Lenders are authorized to grant reasonable exceptions to non-occupant borrowers when it can be demonstrated that the need to vacate was related to the cause of default (e.g., job loss, transfer, divorce, death), and the subject property was not purchased as a rental or used as a rental for more than 18 months prior to the mortgagor’s acceptance into the PFS Program.
4) Have only one FHA-insured loan. Lenders are authorized to make reasonable exceptions for homeowners who have acquired an FHA-insured property through inheritance or co-signed a FHA-insured loan to further enhance the credit of another mortgagor.
5) Are not a corporation or partnership (i.e., unless a written request to utilize the PFS has been approved by HUD’s National Servicing Center.
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If you currently have an FHA loan and want to participate in an FHA Pre-Foreclosure sale fill out this form